ITO-15(3)(1), MUMBAI, MUMBAI vs. PRITI HEMANT KANDALKAR, MUMBAI

आदेश / ORDER PER BEENA PILLAI, JUDICIAL MEMBER: Present appeal filed by the assessee arises out of the final dated 28/01/2026 passed by NFAC (Delhi) for A.Y. 2020-21 on the following grounds of appeal:- “1) On the facts and in the circumstances of the case and in law, the Revenue’s appeal is maintainable notwithstanding that the tax effect is below the monetary limit prescribed in CBDT Circular No. 09/2024, as the case is squarely covered under the Exception Clause (h) of Para 3.1 of CBDT Circular No. 05/2024 dated 15.03.2024, as the addition is based on information/evidence collected during a search action under Section 132 of the Income Tax Act in the case of M/s. Polycab India Ltd.

and its related entities, which established the existence of an organized syndicate providing accommodation entries. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition to 12.5% of the bogus purchases, without appreciating that the entire transaction of Rs. 12,00,995/- was conclusively proven to be an accommodation entry through specific digital evidence seized during the search on the Polycab group.”

2.5. Thus, the Ld.AO treated the purchases claimed to have been made by the assessee as bogus, relying upon statements recorded from the promoters of Polycab India Ltd. and its related entities,

as well as certain distributors. On the basis of the said material, the Ld. AO made the disallowance by treating the impugned purchases as unexplained expenditure under section 69C of the Income-tax Act, 1961, holding that the assessee had failed to satisfactorily explain the source and genuineness of the alleged expenditure. Aggrieved by the order, of the Ld.AO the assessee preferred the appeal before the Ld.CIT(A). 3. Before the Ld. CIT(A), the assessee submitted detailed explanations along with supporting documentary evidences in respect of the purchases made from M/s Sunrise Enterprises. The assessee furnished computation of income along with updated balance sheets and profit and loss accounts for the financial years 2017–18 to 2019–20.

3.1. In support of the genuineness of transactions, the assessee filed, inter alia, the following details:

3.2. It was further submitted that during the assessment proceedings, repeated requests were made to the Assessing Officer to provide copies of statements recorded under section 132(4) and to grant opportunity for cross-examination of the persons whose statements were relied upon. However, the same was not provided, thereby violating the principles of natural justice.

3.3. The assessee contended that the addition was made solely on the basis of third-party statements alleging accommodation entries, without any independent corroborative material linking the assessee to such alleged activities. It was submitted that the documentary evidence furnished clearly established the genuineness of purchases, none of which had been found to be fabricated or disproved by the Assessing Officer.

3.4. Without prejudice, the assessee further submitted that even if any addition was warranted on account of alleged bogus purchases, the same should be restricted only to the extent of the estimated profit element embedded therein. Reliance was placed on the judgment of the Hon’ble Bombay High Court in PCIT vs. Mohammad Haji Adam & Co. reported in [2019] 103 taxmann.com 459 and CIT vs. Nikunj Exim Enterprises Pvt. Ltd. reported in 372 ITR 619.

3.5. The Ld.CIT(A), after considering the submissions of the assessee, observed and held as under: “6. The appellant is engaged in running an electrical products trading business. This assessment was re-opened on the basis of the findings of a search action conducted on 22.12.2023 on Polycab India Limited and related entities, including SP Electrosolutions (P) Limited (earlier Sunrise Enterprises), one of the key distributors of Polycab India. A statement was recorded from Shree Jaydeep Mahajani, Account Assistant Sales of SP Electrosolutions (P) Limited. He admitted under oath that bogus sales bills were generated by him upon the direction of Sri Vijay Pahuja, director of SP Electrosolutions (P) Limited. It was admitted that bogus sales were concealed using a password in Tally; such bogus sales did not involve any physical movement of goods. As per the details available, the appellant’s concern (M/s Smart Control) effected bogus purchase from Sunrise Enterprise totalling Rs.12,00,995 in FY 2019-20.

6.1. The appellant has not denied that it undertook purchases from Sunrise Enterprises totalling to Rs.12,00,995 in the previous year. However, the appellant argues that the purchase was genuine since the transaction is supported by e-way bill, bank statement, invoice, etc. However, in this case, the seller (Sunrise Enterprises) has confirmed under oath that the transaction undertaken with the appellant was not genuine. It is also to be noted that in accommodation entry, bogus transactions are given the colour of genuineness by routing such transactions through bank accounts and by creating document trail. Therefore, the mere presence of documentary trail does not prove the genuineness of the transaction.

6.2 It may be noted that a statement recorded under section 132(4) has evidentiary value. Further, contents of seized books are presumed to be true as per section 132(4A)(ii). The relevant section is reproduced below:

*“132(4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.”*

6.3 The appellant has argued that the AO did not provide opportunity of cross-examination while relying on the statement of a witness. It is settled law that cross-examination is not enjoined under the IT Act. It is also to be reckoned that there are practical difficulties in examining a witness whose statement was taken during the course of search several years prior to the year in which assessment is framed. Therefore, the argument of the appellant that natural justice is denied since cross- examination of a witness was not allowed is not correct and is rejected.

6.4 The appellant has argued that the assessment was re-opened on the basis of circumstantial evidence and that approval u/s 151 by higher authorities was perfunctory.

6.5 In this case, information generated from a search related to the appellant. Hence, the assessment was re-opened. Therefore, the case of the appellant is covered by clause (iv) of Explanation 2 to section 148. Regarding approval u/s 151, the Act does not contemplate a situation where the approving authority should conduct any independent inquiry before giving approval. In this connection, reference may be made to *PCIT vs Agroha Fincap Limited* [2025] 179 taxmann.com 185 (Delhi). It was held that where the Competent Authority used the language *“Yes, I am convinced it is a fit case for reopening of assessment under section 147 by issuing notice under section 148”*, the same would satisfy the mandate of section 151.

6.6 The appellant has argued that only the gross profit of the impugned transaction should be assessed at the GP rate of 15.8% (average GP of the preceding three years) and that the entire purchase should not be disallowed u/s 69C.

6.7 In this case, the AO has not disputed the sales or rejected the books. Therefore, there is merit in the contention of the appellant that to realise sales of Rs.3,56,93,326, purchases could not have been wholly bogus. In this case, purchasing from non-genuine suppliers, or from the grey market at lower rates and recording the same at inflated price in the books of account cannot be ruled out. It follows that GP rate from the purchase should be brought to tax over and above the business income offered. Accordingly, concealed gross profit element from the purchase totalling Rs.12,00,995 may be estimated at 15.8%. This may be added under the head “Business”. Addition made u/s 69C may be deleted. Reference may be made to the ITAT Mumbai decision in *Kimaya Impex (P) Ltd. vs ITO* [2022] 136 taxmann.com 117 (Mumbai-Trib.), wherein it was held that where the assessee's claim of having made genuine purchases from parties was not proved, however, since sales of the assessee company had been accepted by the department, it could be safely concluded that the assessee had purchased goods in question not from the aforementioned parties but at a discounted value from the open/grey market and, therefore, disallowance of purchases could safely be restricted to 12.5% of the aggregate value of the impugned purchases.

6.8 In the light of the foregoing discussion, Grounds 2, 5 and 6 are dismissed. Ground 4 is partly allowed. Grounds 1, 3, 7, 8 and 9 are general/consequential and are not separately adjudicated.”

Aggrieved by the order of the Ld. CIT(A), the revenue is appeal before this Tribunal.

4.1. On the other hand, the Ld. AR submitted that the Ld. CIT(A) had proceeded to estimate the disallowance by adopting a gross profit rate of 15.8% on the alleged bogus purchases. It was further submitted that such estimation was in line with the alternate plea of the assessee before the first appellate authority, wherein it was contended that, without prejudice to the claim of genuineness, only the profit element embedded in such purchases, if at all, could be brought to tax.

We have perused the submission advancements by both sides in the light of records placed before us. 5. It is noted that the Ld.AO neither disputed the sales declared by the assessee nor rejected the books of account maintained by it. In the absence of any adverse finding on sales or any rejection of the book results under section 145 of the Act, it cannot be presumed that the entire turnover is tainted merely because certain purchases have been doubted on the basis of third-party information. Therefore, we find merit in the contention of the Ld.AR that the entire sales of ₹3,56,93,326/- cannot be treated as bogus merely on account of purchases made from the alleged accommodation entry provider. Once sales have been accepted and corresponding turnover has been offered to tax, the possibility of purchases having been made from alternative sources cannot be ruled out, particularly in cases where the genuineness of sales is not under dispute. In such circumstances, only the profit element embedded in the disputed purchases can be brought to tax. This principle has been consistently upheld by the Hon’ble jurisdictional High Court in PCIT vs. Mohammad Haji Adam & Co.(supra) and CIT vs. Nikunj Exim Enterprises Pvt. Ltd.,(supra) wherein it has been held that where sales are accepted, addition cannot be made for the entire purchases and only the estimated profit element can be taxed. In the present case, the Ld.CIT(A) has estimated the gross profit rate at 15.88% on such alleged bogus purchases. The said estimation, in our considered view, is reasonable and is in consonance with the judicial precedents governing similar facts, particularly where the purchases are treated as unverifiable but corresponding sales are accepted. We, therefore, do not find any infirmity in the approach adopted by the Ld.CIT(A). The estimation of profit at 15.88% on the disputed purchases is upheld as it represents a fair and reasonable approximation of income embedded in such transactions, consistent with the settled legal position. Accordingly, the grounds used by the revenue stands dismissed. In the result appeal filed by the revenue stands and dismissed. Order pronounced in the open court on 05/06/2026.

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ARUN KHODPIA BEENA PILLAI ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai Dated: 05/06/2026 Sc, Sr. P.S.

Copy to: ITO-15(3)(1) ROOM NO.456, AAYAKAR BHAVAN, 1 MAHARSHI KARVE ROAD, MUMBAI-400 020

PRITI HEMANT KANDALKAR A 304, BLDG NO 2, SHRAMIK CHS, 2 TILAK NAGAR, CHEMBUR, MUMBAI- 400089

3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAIBENCH 5 GUARD FILE